India’s Sensex Index Completes First Weekly Advance in Three

By Rajhkumar K Shaaw -
Dec 28, 2012

Indian (SENSEX) stocks advanced, with the
benchmark index completing its first weekly gain in three, led
by shares of energy companies and metal producers.

The BSE India Sensitive Index, or Sensex, climbed 0.6
percent to 19,444.84 at the close in Mumbai, extending this
week’s gains to 1.1 percent. Volumes on the index were 23
percent lower than the 30-day average.

The Sensex has risen 26 percent this year, headed for its
biggest annual jump since 2009, as the government responded to
the threat of a credit-rating downgrade with its biggest push in
a decade to open up the economy to foreign investment. Asian
stocks advanced and U.S. index futures fluctuated between gains
and losses as U.S. lawmakers arranged talks before a budget
deadline, with Democratic and Republican leaders of the House
and Senate planning to meet with President Barack Obama.

“Global markets are realigning to the fact that we may not
have a deal in the next few days and it could possibly spin over
to a good part of January,” Amit Khurana, director of research
at Dolat Capital Market Ltd., said in an interview today. “I
don’t think it will lead to a significant correction in India.
Factors here are turning for the better and not the worse.”

Recovery Signs

The MSCI Asia Pacific Index climbed 0.5 percent today. The
measure has advanced 14 percent this year, poised for the
biggest annual rise since 2009, as the U.S. and Chinese
economies showed signs of recovery and central banks around the
world took action to shore up growth.

India’s efforts to rival China as the fastest-growing major
emerging nation have been hurt by budget and trade deficits and
supply bottlenecks that have kept inflation above 7 percent.
Prime Minister Manmohan Singh overhauled policies in mid-
September, raising diesel prices and opening the economy to more
foreign investment as he struggles to lift growth from last
quarter’s 5.3 percent pace.

The policies are driving the nation’s largest money
managers to accumulate automakers, property companies and metal
producers that stand to benefit most from a recovery.

Reform Process

“The last two years we were all hiding behind so-called
safe stocks,” said Singhania, who helps oversee about $16
billion at Reliance and manages the nation’s best-performing
fund in the past decade. “The government means to take this
reform process ahead and that is very clearly reflected in the
optimism in the market. We think that is going to continue.”

The policy actions were a “trigger” for Mahesh Patil, co-
chief investment officer at Birla Sun Life Asset Management Co.,
to switch from so-called defensives to cyclical stocks that
would gain from a cut in interest rates. Birla is India’s
fourth-biggest fund with $13.3 billion in assets.

Reserve Bank of India Governor Duvvuri Subbarao signaled
higher odds on Dec. 18 of a cut in interest rates next year as
he held borrowing costs unchanged for a fifth policy meeting.
Goldman Sachs Group Inc. (GS) said the next day it sees a “high
likelihood” of a 50-basis point reduction in a policy review
due on Jan. 29, Tushar Poddar, the bank’s chief India economist,
wrote in a note to clients.

Overseas Funds

Overseas funds were net buyers of domestic stocks for a
29th day on Dec. 26, the longest stretch of net purchases since
a record 41-day streak through Oct. 27, 2010, taking net
purchases in 2012 to $24.2 billion, the highest among 10 Asian
markets tracked by Bloomberg, excluding China, data compiled by
Bloomberg show.

The S&P CNX Nifty Index (NIFTY) on the National Stock Exchange of
India rose 0.7 percent to 5,908.35. The BSE Mid-Cap Index added
0.8 percent. India VIX, which gauges the cost of protection
against losses in the Nifty, fell 0.8 percent to 13.63, data
compiled by Bloomberg show.

Diesel Prices

The government will increase diesel prices by 10 rupees per
liter over the next 10 months to pare subsidies. Singh’s
administration last pared fuel subsidies on Sept. 13, which
sparked a 7.9 percent rally in the Sensex, the most among the
BRIC nations.

Finance Minister Palaniappan Chidambaram has pledged to
narrow the budget shortfall to 5.3 percent of GDP this fiscal
year ending March, from 5.8 percent in 2011-2012. Last year’s
gap was the widest among the largest emerging markets, fanned by
a subsidy program ranging from diesel to fertilizers.

“The hike in the diesel price by 1 rupee per month would
be positive for oil marketing companies,” A.K. Prabhakar,
senior vice president for equity research at Anand Rathi
Financial Service Ltd. in Mumbai, said today. He expects shares
of oil marketing companies to rally 8 percent to 15 percent over
the next six month.